The most simple way to understand altcoins is that an altcoin is any cryptocurrency that is not Bitcoin. When Bitcoin first emerged as the original cryptocurrency, it took a massively early lead, and its closest competitors took years to even be developed.
All these competitors are now known as altcoins, or “alternative coins”. Bitcoin has been in pole position since day 1, and doesn’t seem to be changing any time soon.
The number of altcoins in circulation is nearly uncountable Ethereum is the most popular altcoin, with other coins like XRP, Tether, LTC, Monero, and others following behind.
In terms of price-tracked coins, there are believed to be around 17,000, but there are many more obscure and unknown coins. Bitcoin occupies roughly 50% of the crypto market cap, with Ethereum taking about 10%, and the other altcoins making up 40%.
Among the most popular altcoins are:
- USD Coin
Today we’ll look at a few of these.
Ethereum was designed to be a decentralized computing network on the blockchain which hosts a number of smart contracts and decentralized applications (known as dapps) that have unlimited capabilities.
Anybody can create an application on Ethereum’s network due to its decentralized nature. Due to its open nature, Ethereum developers are in big demand. It is of course also used as a store of value for investors and cryptocurrency enthusiasts.
“Ethereum serves two purposes: One, it acts as money and can be a store of value,” says Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform. “But Ethereum is also like a highway for decentralized finance.”
Ethereum was invented by programmer Vitalik Buterin in 2015. “He realized that Bitcoin is like a pocket calculator, designed to do one thing, and it does it really well, but you can’t do anything else with it,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet.
So Buterin created Ethereum, a blockchain network with an associated cryptocurrency called ether (ETH), with the potential to do far more.
In many conversations, especially with those approaching the subject from a pure investment aspect, ‘Ether’ and ‘Ethereum’ are used interchangeably, but by definition, this is not technically true.
Ethereum itself is perhaps best thought of as a smartphone. Developers can create new and exciting applications for it, many of which are geared toward cryptocurrency enthusiasts.
“It’s all powered by this idea of smart contracts,” Leech said. Smart Contracts are programs that run autonomously on the blockchain. Smart Contracts are seen as game-changer by many as they perform all the functions that normally some third-party would have to take care of.
One example of smart contracts in use is in peer-to-peer lending, which has proven to be a popular dapp running on Ethereum. This allows individuals to lend each other money without having to rely on a bank, as a Smart Contract takes the place of the bank.
In this case, the contract lends the money when the collateral is placed into the correct wallet or account. Potential benefits of using a smart contract instead of a traditional lender include the speed of execution, lack of human error or bias, and lower fees.
This is just one example of a smart contract function, and today the possibilities still seem to be endless. But there are also categories of dapps for things like buying and selling digital artwork, gaming, and developer technology.
This is seen most commonly today with NFTs, or non-fungible tokens. These digital tokens are powered by Ethereum and are used to represent ownership of unique items, according to Ethereum’s website.
NFTs are known to most in the form of digital art, but they are expanding to include rental contracts, property ownership deeds, music, and more.
Many cryptocurrencies use mining as a way to verify transactions, which involves high-end machines solving complex mathematical equations. XRP instead verifies transactions through a consensus protocol. The majority of the validators who review a transaction must accept that it is valid.
XRP is considered to be faster, cheaper, and more energy-efficient than other cryptocurrencies. Because of the consensus protocol, XRP conducts its transactions in seconds at low lost, with minimal energy. Many consider XRP to be the “Green” choice in cryptocurrencies. Other cryptocurrencies are considered to be quite slow in transactions and have come under fire for their high energy consumption.
XRP is much more limited in supply compared to other cryptocurrencies. For example, Bitcoin has a supply of 21 million coins, while XRP has 100 billion. This also means the price of XRP is much, much lower.
XRP was pre-mined, meaning all 100 billion coins were minted before it launched. Ripple itself locked 55 billion of these into escrow, and a smart contract was setup up to release one billion XRP from escrow monthly.
Lastly, Ripple is a private company. XRP may be decentralized as a cryptocurrency, but it is still spearheaded by a private company. This is much different to other cryptocurrencies which are fully decentralized. To many investors who are used to traditional investments, this may be seen as a positive, but for crypto enthusiasts, it is often viewed as a negative.
When Monero (XMR) appeared in 2014, it was the first cryptocurrency to feature cryptographical advances over its peers and centered itself around privacy and fungibility. The very primary feature Monero offered was that it allowed its users to send and receive transactions without making the data available to anyone examining the blockchain – It does away with the transparency of other cryptocurrencies.
Monero is often grouped with other privacy-focused cryptocurrencies, such as Zcash (ZEC). Both have sought to address privacy weaknesses in Bitcoin, such as the transparency of its blockchain.
Though the launch of the Zcash project enjoyed media attention and backing from privacy VCs, Monero’s genesis is more similar to Bitcoin, as a small online tech community that grew quietly over time.
Other than its lack of transparency and absolute privacy, Monero boasts other features.
Monero is designed to update every six months, allowing a regular schedule to add features.
This has led Monero to add many privacy features since its inception.
Tether and Other Stablecoins
Stablecoins are a type of cryptocurrency that is tied to a more stable asset as the basis for its value. When people talk about stablecoins, they usually mean cryptocurrency tied to a fiat currency, especially the US dollar. Some stablecoins are instead linked to precious metals or even other cryptocurrency.
At their core, what differentiates stablecoins from regular cryptocurrency is that they are far less volatile and resemble the physical currency we’re used to.
“Its purpose is to provide stability of price as people are transacting across coins or between fiat and digital currencies because crypto markets can be volatile,” says Doug Boneparth, a financial advisor and president of Bone Fide Wealth in New York.
Just as there are many types of regular cryptocurrency, there are many stablecoins, with some being considered stronger than others.
Tether (USDT) is perhaps the most well-known stablecoin, as well as being the first, having been created in 2014. Roughly 85% Tether’s assets are cash, cash equivalents, short-term deposits, and commercial paper, according to its website.
Another popular stablecoin is USD Coin, which was launched by Circle. USD Coins are pegged to the US dollars and short-duration U.S. Treasuries with a circulating supply of $49 billion, according to Circle.
There are several other popular stablecoins, including Dai, Binance USD, and TerraUSD. These all have smaller market caps than Tether and USD Coin.
Depending on what transactions you make with cryptocurrency, stablecoins can function as a bridge between the more volatile cryptocurrencies and stable assets like fiat. By trading in stablecoins instead of US dollars, you may be able to avoid fees found on exchanges which charge for transferring between USD and cryptocurrency
For more experienced crypto traders, Stablecoins are used for staking and lending.
It is also common to use stablecoins to transfer money internationally to avoid bank fees.
The Future of Altcoins
As long as Bitcoin and cryptocurrency exist, there will be altcoins. However, with over 17,000 of them available it can be difficult to navigate which has usability or which one is good to invest to.
A common way to discern this is to use a website like CoinMarketCap and note the top 100, top 50, top 10, or top 5 cryptocurrencies depending on how risk-averse you are. Research the coins you see based on the listings found here.
There are many obscure coins out there that promise early investors the world, but are very often scams. In the wild-west of altcoins, it is perhaps better to stick to the road more traveled.
Protecting Your Altcoins
Cryptocurrency and the blockchain stand to be a major driving factor in the technology of the future. However this popularity has attracted an element of cybercrime. There are several tools internet users should use to increase their online protection. One of these tools is SaferNet.
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